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Paving the Road for the Urban Traveler

August 8, 2012 6:00AM

In early 2003, following the internet boom, Scott Griffith, ’90, had the experience of running two start-ups under his belt and was looking for his next endeavor. He was intrigued by Cambridge, Massachusetts–based Zipcar, the young company that pioneered the big idea of car sharing. The concept was simple. In large cities, where car ownership was costly, Zipcar members could rent a Honda Civic or a Volkswagen Beetle to run errands or head for a weekend getaway, all for much less than the cost of a conventional car rental. And the venture was irresistibly green. Reducing the number of vehicles downtown would lower pollution, parking demand, and gridlock.

But the company was inefficient and losing money, so when Griffith stepped in as chief executive, he applied the kind of rigorous data-driven analysis he first learned at Booth. He nurtured a performance-based culture, launched hyper-local marketing campaigns, expanded the vehicle fleet, and targeted new markets, growing the company to 18 metropolitan areas and 250 college campuses. He also broadened the appeal of the brand from utilitarian to fun.

Membership at Zipcar has grown to more than 700,000, and the company boasts a fleet of more than 9,000 vehicles, not just Civics, but Mini Coopers, BMWs, Fords, and even hybrid and all-electric vehicles. The company went public in April 2011 and its stock is traded on the NASDAQ under the symbol ZIP. Griffith recently discussed his Zipcar journey with dean Sunil Kumar in a Critical Dialogues conversation.

Kumar: When you were first recruited to join the team at Zipcar, what attracted you to the company’s idea and business? What were some of the things you considered in making the decision?

Griffith: I like to think of Zipcar as my own personal sweet spot because it brought together three of my passions: innovation, transportation, and cities. I grew up in Pittsburgh and saw the incredible impact that innovation and technology had in turning that city around after the death of the steel industry. I had moved back to Boston after running two internet start-ups. I was a cancer survivor, and I wanted to do something that made a difference. In 2002, I started watching Zipcar and saw a huge idea. When I was offered the CEO role in early 2003, I knew I was taking a tremendous risk, but I loved the vision.

Kumar: What kinds of changes did you have to make to move the company forward?

Griffith: We’ve been able to build the brand by being very specific and deliberate in our business model and the processes for everything from fleet management to hyper-local marketing. For example, when I arrived, there was a move afoot to do a major media buy to place ads on trains and in bus shelters. It didn’t go well because you can’t explain what Zipcar is about on a bus ad. But out of failure came a better idea—very localized zone marketing. We created print materials that we placed in card holders at dry cleaners and cafés. We put grassroots marketers on the sidewalks with collateral. I even rode through neighborhoods on a flatbed semi with Zipcars on it and used a bullhorn to explain what Zipcar was about.

Also, when I joined the company, we had 60 cars in New York City, but they were spread out, so efficient marketing was difficult. We moved all the cars to the Chelsea area, a hip, young neighborhood in lower midtown, where we were able to target our message. At the time, we were growing at a 15-percent rate, but when we focused on Chelsea with our concentrated fleet and hyper-local marketing approach, our membership tripled in a month and a half. That was a goose-bump moment.

Kumar: Did you have to change the brand’s positioning?

Griffith: At the start the image was too basic, too green. We offered mostly white or silver Honda Civics and VW Beetles. To reach a broader audience, we needed to offer more variety and make the brand about lifestyle. In 2004, we started adding colorful Mini Coopers, Mazdas, and BMWs, even SUVs. That generated some good press and expanded the appeal to a much broader audience of users.

Kumar: Why did you make the decision to go public last year?

Griffith: Although we went public last year, the strategy was set years earlier when we decided to be a global company. The car-sharing business traditionally has been divided into two camps: smaller local operators with a tight geographic focus, and larger global companies like Zipcar with operations in many cities. The capital needs for each model are incredibly different. We knew that to achieve our long-term business goals we would need a funding model that involved the public markets given the asset intensity of the business. While we don’t necessarily need a lot of equity capital, going public has enhanced our ability to tap more deeply into the asset-backed securities market to support our fleet growth with a low-cost leveraged model.

Kumar: What has been the biggest challenge for you and the company since going public last year?

Griffith: On a personal level, becoming a public company CEO has challenged me to step up my game. The bar has been raised and so have the expectations of many more people. I’ve needed to get better at time and team management. No CEO has extra time in the day to spend doing something new. You have to figure out, what do I need to hold onto, and what can I delegate to others on my team?

Kumar: Has the emphasis on quarterly earnings affected the way that you and your team manage the business?

Griffith: To some extent, yes. As a private company, you talk to small groups of investors in business meetings. We now have a much larger group of shareholders in the public market to whom we have a fiduciary duty. They can be pretty focused on the short term, so we’re trying to make sure they understand our strategy of investing for long-term category leadership. You have to get consistent messages across in one or two sentences through the media; I’m learning the art of the sound bite.

Kumar: Car sharing makes a lot of sense, especially for city dwellers and college students. But the model is still young. What will it take for sharing to become mainstream, and when do you expect that to happen?

Griffith: With more than 700,000 members—including governments and businesses—sharing nearly 10,000 cars in the US, Canada, the UK, and Spain, I’d say that Zipcar is moving into the mainstream. With 10 million people who can walk to a Zipcar in less than 10 minutes, we have substantial room for growth in our existing markets, but compared to when I took the wheel in 2003, this industry is no longer considered a niche play.

Kumar: How do you stay in touch with your customers?

Griffith: I think both members and employees believe that we are all part of something much bigger than ourselves. So we engage with our customers, whom we call Zipsters, virtually and physically. As a global company, we strive to maintain a local appeal, with storefront offices in our major cities where Zipsters can meet employees for business and social purposes. For instance, our San Francisco office has frequent events where members can play Xbox, foosball, and other games with employees at the office. We also have an active social media program, with Twitter, which has more than 30,000 followers, and Facebook, which has more than 100,000 likes.

We’re big believers in the Net Promoter Score, in which customers rate their experience on a scale of 1 to 10, and we use this feedback loop extensively to track and measure customer satisfaction and loyalty. If there are detractors, we call them to find out what happened and what we can do better. Sometimes I call them personally.

Kumar: What are the challenges of your business model that still must be overcome? In particular, how do you plan to improve profitability?

Griffith: There have been a lot of questions about the profitability of our model. Zipcar previously has reported that it expects to be profitable on a GAAP basis for 2012. In our established markets, our first four cities of Boston, New York, Washington DC, and San Francisco, Zipcar achieved 22-percent growth in 2011 while producing earnings before tax of 23 percent of revenue. We have a long-term business model that gets us to a very exciting corporate margin structure as we scale the global operation.

We learned early on that the model could be profitable. In July 2004, a young controller came into my office with results from Boston, New York, and Washington DC. They were all bottom line positive. That was a game-changing moment, when we learned we could make money in individual cities. That’s when I knew we could attract venture capital investors.

Kumar: Some worry that deep-pocketed competitors will come along and dominate the market. How do you defend against that?

Griffith: We think that larger companies getting into the space validates what we’ve known for years: that car sharing is a multibillion dollar opportunity. But car sharing is fundamentally different from car ownership and car rental, in much the same way that streaming video on a smartphone is fundamentally different from renting DVDs at a store. Zipcar pioneered the category in the US and we continue to lead it. With our first-to-scale advantage, our unparalleled knowledge base, a brand that has become synonymous with the category, and a fantastic team, we’re in a great position.

Kumar: You have a relatively new partnership with Ford Motor Co. Can you share any lessons of how a young, small company can develop strategic relationships with an establishment icon?

Griffith: We share a vision of the future of mobility. Bill Ford himself said a few years ago that he believes the future of transportation would be a mix of privately owned cars, public transit, and Zipcar. In this venture, we both brought something to the table. Ford brought some great vehicles and a willingness to help accelerate adoption of car sharing on campuses, and we brought a powerful brand among millennials and urban dwellers, as well as our decade of experience in car sharing. I don’t think we would have been able to do this deal five years ago given our size and reach and the overall state of the industry. Timing plays a big role when smaller companies want to do deals with large global players. They’re looking for reach and we had to achieve some scale before we could offer that to a partner.

Kumar: What are some of the lessons from your Booth years that still resonate?

Griffith: You have to do the math and get the business model right. And one way to do that is to follow the Booth approach, using data to drive decision making. This is an enduring lesson. And Zipcar certainly is a treasure trove of data. How many cars do you need in a city to make money? In the beginning, the staff didn’t know. How many people are needed to run the business? What is the cost to acquire a new member?

Professor Harry Davis was inspiring to me, given the impact of his insights on the critical importance of product development and on how customer research and data can drive great products. Of course, he built on that platform with his research on the importance of leadership development—how great leaders lead great companies and develop great cultures.

Kumar: How do you recruit and retain top talent?

Griffith: Zipcar is an innovative, disruptive technology company, and, as such, we look to hire innovators and leaders capable of thinking about the traditional issues of car ownership—congestion and sustainability—in nontraditional and innovative ways. I think the biggest reason people come to and stay at Zipcar is because they share our vision and are motivated by our mission. They want to be a part of something that is larger than themselves. People come to work at Zipcar because they feel passionately about our values, are proud of the brand, and want to see Zipcar succeed. Employees know that they can have an impact, and that is meaningful. Of course, rewards do matter—pay and benefits, stock options, and long-term incentives are important factors. But if they are the primary motivators, it’s a red flag for me.

Kumar: What entrepreneurs or business leaders do you most admire and why?

Griffith: We live in a world where genuine leadership and high integrity are the hallmarks of great CEOs. CEOs with these qualities are ones that I tend to admire. Jeff Bezos, with his long run revolutionizing retail, online commerce, and brand building, is inspirational. I think Ford is one of the greatest turnarounds and one of the most interesting business success stories of the past decade. I admire Bill Ford’s and Alan Mulally’s vision, guts, leadership, and business acumen.

Kumar: What do you read for business—websites and print publications, including business books? What do you read to unwind?

Griffith: I am constantly reading periodicals such as Fortune, Bloomberg Businessweek, the Wall Street Journal, Time, and Wired, probably to a fault. My team will tell you their in boxes are full of links to articles I find interesting. If I read business books,they tend to be on or about great leaders. I thought Walter Isaacson’s biography of Steve Jobs was interesting. Other than that, I’m reading a lot about big data. I really liked Thinking Fast and Slow by Daniel Kahneman. As for unwinding, believe it or not, I enjoy reading about vintage cars and browsing them on eBay. If you grew up in the late 1970s in Pittsburgh—or maybe anywhere in the US—you know what I’m talking about!

Kumar: What keeps you up late at night?

Griffith: I think the biggest thing for me right now is how to take what has made us successful and extend it as the company grows. The culture we developed during the past decade as well as our relentless focus on the member experience has made us successful. We’ve got to find a way to keep this intact as we expand our global footprint. So, how do we foster and keep the company culture across a broader and broader set of operations and geographies; but also, how do we continue to find and recruit new team members globally that can help us execute? Looking back over the past nine years, we’ve seen Zipcar grow something like 7,000 percent. I know that I can’t keep up with this if I’m only growing at 15 percent per year. I know I have to up my game through developing self-awareness and self-innovation. I find that the wee small hours of the morning are a good time to take stock of myself, my work, and some of the things I need to do to be a better leader. Self-innovation is the most important innovation of all.


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